Marina Yardaeva Credit road kamikaze: Why Russians are in debt 08:05

In the summer, the Central Bank raised the policy rate from 16% to 18%. Another increase is expected in the near future. It seems that this is how they fight inflation. But the problem is: the acceleration is still accelerating, and economists are already joking about putting out fires with kerosene. Elvira Nabiullina’s department also explains that the increase in interest rates should reduce the population’s desire to take out loans. But this is even more interesting. The restrictions seem to only encourage our citizens: the debt burden is increasing. Moreover, loans seem to be becoming valuable in themselves, regardless of what is purchased with their help. Some strange gurus have long been instilling in our people that loans are an investment, and people literally believed that they were going crazy.

Seriously, financial news can sometimes seem like news from a madhouse.

They write that in Russia there is a credit boom, despite the strong increase in prices for all banking products.

Consumer loans in the first five months of 2024 grew up In 2021, when the base rate rose from 4.5 percent to 8.5 percent, the increase compared to the same period of the previous year was 741 billion. in 2021 before the crisis, it was 1005 billion. And in the field of auto loans there was an absolutely sensational increase: they write that such indicators have never existed in history. During the period of low rates in January-July 2023, the average monthly increase was only 31 billion per month, in 2021 it was 19 billion, and now it is an average of 100 billion.

Recently I talked about this with a friend who works as a credit manager in a car dealership. He confirms this: people are practically lining up to buy incredibly expensive cars on credit at an equally fantastic interest rate. People with a salary of 80 thousand rubles take out a car loan for 8 years with a monthly payment of 70 thousand. Moreover, some of these borrowers have several outstanding credit history. And they get approval for new ones! If today in the mortgage industry there are a lot of rejections – banks are risk-averse, then there is nothing like that here. Of course, incidents happen. People return to the car dealership after a few months with a request to take back the car and cancel the loan, because they “got too excited”, “did not calculate their strength”, “my” wife lost her job, and it is impossible to pay off the debt with one salary.” The managers understandably shrug their shoulders, they say, it doesn’t work that way, bankruptcy will benefit you. Meanwhile, the number of bankruptcies is also reaching some record levels.

What happened to the people? And they believed in the new religion of saving money. They progressed cheerfully from the simple proposition that “credit is not bondage, but an ordinary financial instrument” to the strange insight that “credit is also a way of saving money and even making money.”

Yes, it turned out that saving money by investing in a pile of metal that loses a third of its value immediately after leaving the car dealership is a dubious way to save money. But why? After all, this has already happened. I remember that at one time various experts advised our people to invest in gold. So what? Russians bought factory scraps with cubic zirconias from jewelers.

It also worked this way with cars. Those who bought a car before 2022, even on credit, found themselves really in the dark. After February 2022, cars became 1.5-2 times more expensive. Some families even sold their second car to pay off the mortgage after such a somersault. But this was difficult to predict, to say the least. Buying a car now at 23-25 ​​percent in the hope of saving the last half million saved by severe austerity and earning something else is a kamikaze path.

However, there are more extravagant ways to whistle at the latter and get yourself into a hole. Another friend of mine told me something incredible. He took financial literacy courses and was offered a completely ridiculous thing: to have almost no resources, earn money on a mortgage, to cooperate with who knows who. It turned out that there are even special communities where the poor but desperate seek each other out in order to do something together. For example, one has a stable but low-paying job, which practically guarantees approval for a mortgage, but there is no down payment (and this is almost everywhere 30%). Another has no official source of income, but got a room in a shared apartment from his aunt. You can join forces, fit into a joint mortgage on a construction site, divide the monthly payments at the same time, and then, when the price of the apartment suddenly increases tenfold in three years, sell it and share the profit. An excellent business plan, in my opinion. I definitely appreciate Pinocchio.

At other financial literacy trainings and marathons, they teach you how to spin a carousel of dozens of credit cards. They say that there is nothing easier than collecting several million from different banks and depositing them at a rate of 20 percent, from time to time paying off the limit of one card with another. Well, the fact that nine out of ten credit card holders miss the grace period and face exorbitant interest rates, that even those who teach such manipulations have had such incidents in the past, is of course nothing, not work costs. And if after such explanations someone thinks that the first rule of financial literacy is not to buy financial literacy courses, then all this is inertia and skepticism.

In general, it is difficult to believe that all this exists, that people really believe in saving and increasing money in debt. Especially when debts are becoming more and more expensive, and assets in the form of real estate, on the contrary, are becoming cheaper, taking into account inflation. It is difficult to believe that people can consider cars and even TVs as assets (the latter are often bought from us in uncertain circumstances). But bank statistics clearly show that people are hopelessly sinking deeper and deeper into debt, and often without any extreme necessity. Perhaps the Central Bank is most afraid of such desperate people, of constant interest rate hikes? Maybe the state is afraid that one day this Tower of Babel will completely collapse and no bankruptcy procedure will work anymore? In fact, the Central Bank cannot really scare the citizen as long as it whets the appetite of the average person.

The author expresses his personal opinion, which may not coincide with the editors’ position.